Pecking Order and Core‐Periphery in International Trade

29 Pages Posted: 18 Sep 2020

See all articles by Glenn Magerman

Glenn Magerman

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Université Libre de Bruxelles (ULB)

Karolien De Bruyne

KU Leuven - Center for Economic Studies

Jan Van Hove

KU Leuven - Center for Economic Studies

Date Written: September 1, 2020

Abstract

This paper analyzes the impact of market size and trade costs on bilateral trade flows. A multi‐country trade model with firm‐level heterogeneity in productivities and countries’ market potential provides a simple micro foundation for the link between these variables. In the model, market size and trade costs jointly determine a country‐specific pecking order of exporters serving their destination countries. In a counterfactual setting where bilateral trade costs are homogeneous across country pairs, market size predicts a common ranking of exporters among destination countries. This leads to a unique core‐periphery structure of the world trade network. With heterogeneous trade costs, we illustrate the impact of market size and trade costs on bilateral trade flows and its margins in a simple gravity‐like setting. Using an instrumental variables approach, we find that both market size and trade costs (measured through the network position of countries) have a significant impact on bilateral exports: countries in the core bilaterally trade more with other countries in the core than with peripheral countries, conditional on typical observables.

Suggested Citation

Magerman, Glenn and De Bruyne, Karolien and Van Hove, Jan, Pecking Order and Core‐Periphery in International Trade (September 1, 2020). Review of International Economics, Vol. 28, Issue 4, pp. 1113-1141, 2020, Available at SSRN: https://ssrn.com/abstract=3694538 or http://dx.doi.org/10.1111/roie.12483

Glenn Magerman (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Ave. Franklin D Roosevelt, 50 - C.P. 114
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Université Libre de Bruxelles (ULB)

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Brussels, Brussels 1050
Belgium

Karolien De Bruyne

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Jan Van Hove

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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